1. You are considering a project which generates $10,000 in 6 months and $20,000 in one year and will run you $26,000 today. You know these cash flows are exact. You also have the Treasury yield curve from the Wall Street Journal in front of you and see t
Corporate Finance C15.0007.001.002 Professor Ashwini Agrawal Practice Questions for Final Exam Spring 2009 Question 1 A friend argues that, even when the assumptions behind the Modigliani and Miller (M&M) Theorems hold (e.g., no taxes), the cost of capit
Page 1 1. You operate a firm which will last one year. At the end of the year, the firm will generate its single cash flow. It will either be 140 or 40 each equally likely. (Assume all cash flows are in $million.) You also have debt outstanding with face
1. You are an investment banker who has two meetings today. Each of these meetings entails clients requesting your services in determining the optimal capital structure for their firms. For each of the cases below, qualitatively describe whether you would
1. As winner of a breakfast cereal competition, you can choose one of the following prizes: (a) $100,000 now (b) $180,000 at the end of five years (c) $11,400 a year forever (d) $19,000 for each of ten years (e) $6,500 next year and increasing thereafter
Problem Set LN2
Question 1. (a) Calculate the NPV of the following project using discount rates of r = 0%, r = 50% and r = 100%, respectively: C0 = -6,750, C1 = 4,500, C2 = 18,000. (b)What is the IRR of this project?
Question 2. Consider a project with th
Problem Set LN1
Question 1. You win a lottery with a prize of $1.5 million. Unfortunately the prize is paid in 10 equal annual installments. The first payment is next year. How much is the prize really worth? The discount rate is 8 %.
Question 2. (a) The
Problem Set LN3
Question 1. You are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high cash flows in t =
Problem Set LN 7
Question 1 Calculate the WACC for Federated Junkyards of America, using the following information. Debt: $75,000,000 (book value). The debt is trading at 90 percent of par (=book) value. The return on debt is 9 percent. Equity: 2,500,000
Assignment 2 Page 1 Corporate Finance Tony Marciano February 6, 2012 1. I assume the Georgia-Pacific, Brunswick Chemical and Southern Chemicals are the identical twins of the Collinsville investment because their net incomes during the 1974 to 1978 period
Problem Set LN 6 Question 1 The common stock and debt of Northern Sludge are valued at $50 million and $30 million, respectively. Investors currently require a 16% return on the firm's common stock and 8% on its debt. If Northern Sludge issues an addition
Problem Set LN 5
Question 1. Suppose a firm uses its company cost of capital to evaluate all of its projects. Will it underestimate or overestimate the NPV of new projects that are riskier than the firm's average projects?
Question 2. An oil company is dr
Problem Set LN 4
Question 1. Which of the following should be treated as incremental cash flows when deciding whether to invest in a new manufacturing plant? The site is already owned by the company but existing buildings would need to be demolished. a) T
1* Income Statement Shows how profitable a firm has been over some period of time. 1* GAAP Revenues appear when they accrue, not when they are collected. Expenses are
matched with the revenues that appear.
2* Noncash items Depreciation. 3
Venture Capital 1. What are some of the (major and minor) reasons why it's difficult for entrepreneurs to raise money for their business ideas? 2. What are some of the (major and minor) reasons why it's difficult for venture capitalists to know where to i
Business: Long distance telecom Competing with AT&T (95% market share) High growth recently because of low cost v. AT&T Capital intensive require huge Capital Expenditure upfront Increasing uncertainty because of deregulation in the industry (breaks AT&T
Gulf Company History 1975: lost reserves & diversify 1981: Lee CEO Refocus on exploration Reserves went up Performance: ROE = 9%, lower than industry average 11% Oil price has decreased recently and was not expected to increase in near future Takeover Tar